Simple Steps for Reducing Your Chances of Identity Fraud

Forget about weekly unemployment claims, home sales, factory usage, consumer sentiment, or any of the other popular indicators. The clearest sign that this economy barely has a pulse is the fact that stores were starting to put up Christmas decorations the week before Halloween. But it makes sense: Retailers reap the bulk of their sales at the end of the year, and they’re trying desperately to get us in the mood to spend money.

There's another link between certain economic indicators and identify fraud: higher unemployment leads to an increase in ID fraud. Well at least it did; in 2009 the two measurements headed in opposite directions.

Javelin Strategy and Research, a security firm that consults with major financial firms such as Wells Fargo (WFC), Bank of of America (BAC), Visa (V), Discover and other well-known names, speculates that this may be due to “extraordinary circumstances: For example, for the first time, U.S. government unemployment benefits were extended to 99 weeks (almost two years).” Translation: this reduced the incentive for someone to steal your identity to get extra money.

Other connections are less obvious. For instance, there is an inverse relationship between Gross National Product (GNP) and the number cases of identity fraud. According to Javelin, “When the GNP falls, the identity fraud rate rises, and when the GNP rises again, the identity fraud rate falls.”

There’s a similar relationship to retail sales. Healthy retail sales bring less identity fraud. Javelin speculates that this might be because retailers have more money to spend on security and fraud detection. In tough times, like the environment we are in now, retailers may be more willing to take a chance on “questionable transactions in time of economic need.”

Now is not the time to let your guard down. While still anemic, on a year-to-date basis, retail sales increased slightly last quarter. But retailers aren’t the only ones trying to separate us from our money this shopping season. Identity thieves also know ‘tis the season for consumers to open up their wallets and whip out checkbooks and credit cards, providing increased opportunities to steal our information.

What’s more, like Santa’s elves, fraudsters have been hard at work all year creating new techniques to steal some of that wealth. (Witness the newest scam dubbed “smishing,” where ID thieves posing as your bank contact you via your smart phone instead of by email.)

While major incidents of cyber thieves hacking into big databases get the most publicity, most identity theft is decidedly low tech. For instance, a TSA agent at Pittsburgh International Airport told me that officers had arrested a pilot who walked off with a woman’s purse after going through the security checkpoint.

It is also much more common for the victim to know the thief. Sadly, often it’s a family member. For instance, cousin Jerry asks to use your computer to check a football score and discovers your never logged out of your bank account. Or perhaps, it was a co-worker who removes your credit card from your wallet, which you conveniently left in your purse under your desk. A household employee rips out a check from the checkbook sitting on the kitchen counter.

New research show that last year it took victims less time to discover they’d been hit by identify fraud. But that’s nothing to celebrate. Those who monitored their accounts online noticed the fraud in less than two weeks. In contrast, other victims were unaware that anything was amiss for months.

Based on Javelin’s latest survey, the longest was 225 days (7 months!) in the case of those who learned about their ID theft when contacted by a government agency. In other instances, the fraud wasn’t detected until the victim had been turned down for credit (192 days) or had reviewed his/her credit report (154 days) or was contacted by a collection agency (134 days).

Then there’s the identity fraud that goes undetected for years. That’s because it involves stealing and misusing personal data belonging to a child or senior citizen. According to the Federal Trade Commission, 8% of the ID theft complaints it received last year involved children. But since the FTC only hears about the cases that get reported, the real number is likely a lot higher.

According to I.D. Analytics, about “half a million children under the age of 18 have had their identities stolen by a parent.” In most instances, mom or dad used the child’s Social Security number to fraudulently obtain credit or other benefits. In addition, “two to three million elderly parents are likely victims of identity theft initiated by their adult children.”

Simple, yet overlooked, steps can greatly reduce the likelihood you, or someone you love, will be a victim of identity fraud. These include:

-Never give personal information to someone calling on the phone or sending you an email or text message. Government agencies--including the IRS, Social Security and Medicare- as well as financial institutions banks, brokerage firms-- never do this.

-Never click on a link inviting you to visit the website of the financial institution or a government agency looking to “verify” your account information. Even if the site looks authentic, it is probably phony.

-Check your bank and credit card statements regularly and carefully to be sure there is no suspicious activity. If you find any, report it immediately.

-Sign up for a credit monitoring service. Some offer family plans that include monitoring for misuse of a child’s identity.

-Never post personal information on social networking sites.

-Install and update security software on your computer.

Surprisingly, the single most common way in which an individual has his/her identify stolen is by having a thief change the address on a bank or credit card account.

According to Javelin’s research, this method moved back into first place last year after having declined for two years in a row. It was “the number one method of account takeovers” in 2010, with 44% of identity fraud victims citing it, nearly twice as many as in 2009.

Phil Blank, managing director of security risk and fraud at Javelin, says the remedy is simple: Get your bank and credit card statements out of your U.S. Postal Service mailbox where crooks can simply steal them. “You don’t even notice [they’re] missing,” says Blank. “More sophisticated fraudsters will steam open your statement, make a copy and put it back in your mailbox. Then they go to the bank and pretend they’re you.” The next thing you know, your account is drained or you’ve got thousands of dollars worth of electronic equipment charged to your credit card.

It is much safer to access your financial statements online where they are protected by your personal passwords and the encryption and fraud systems installed by your bank/brokerage firm/credit card company. In addition, since you can access your account information daily, you’re more likely to detect fraudulent activity sooner, before severe damage is done. On average, victims who monitored their accounts online discovered their identity had been stolen in just 13 days.

You can even stop a credit card fraud before it even happens. Most major credit card companies will allow you to put an “alert” on your account. According to Blank, “Anytime there’s a ‘card-not-present’ transaction(1), you’ll receive a text message… If you don’t approve it, it doesn’t go through.”

Still, despite your best efforts, life happens. You lose your wallet.

Now what?

Several website offer free, downloadable files where you can list all of your important financial information so that you can more easily report it missing. Alternatively, you can print out the forms and file the information in a safe, i.e. locked, location.

CreditCards.com’s Wallet Recovery Kit, won’t magically enable you to hone in on the physical object, but it will walk you through who to contact, what to say, etc. The “kit” is really an interactive folder that you download to your own computer. There’s a page to list all of your credit card account numbers as well as each company’s toll-free phone number to notify them of a lost/stolen card. Other pages are for your bank account information, health insurance cards, debit cards, Social Security and Drivers License information, and helpful scripts to use to explain what happened.

Just remember: it won’t help you at all unless you actually take the time to enter your information!

1. One in which a physical card is not used, say, via an internet, phone, or mail order purchase.

Ms. Buckner is a Retirement and Financial Planning Specialist and an instructor in Franklin Templeton Investments' global Academy. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.

If you have a question for Gail Buckner and the Your $ Matters column, send them to: yourmoneymatters@gmail.com, along with your name and phone number.

Ms. Buckner is a Retirement and Financial Planning Specialist and an instructor in Franklin Templeton Investments' global Academy. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.

If you have a question for Gail Buckner and the Your $ Matters column, send them to: yourmoneymatters@gmail.com, along with your name and phone number.